Concerns Over Production Sharing Agreements for Uganda’s Mining Sector
This article discusses the concerns raised by researchers regarding the production sharing agreement (PSA) framework being negotiated by the Ugandan government for the mining sector, particularly its potential risks and challenges. Experts from the Natural Resources Governance Institute advise caution and emphasize the need for developing Uganda’s capacity in mining management and marketing before pursuing PSAs. The National Mining Company’s formation aims to maximize national benefits amidst ongoing discussions about governance and operational strategies in the mining sector.
Recent research has raised significant concerns regarding the production sharing agreement (PSA) model of benefit sharing in Uganda’s minerals and mining sector. The Ugandan government is currently negotiating a PSA with the Sarrai Group to assume control of Kilembe Mines. Experts from the Natural Resources Governance Institute (NRGI) emphasize that while PSAs are prevalent in the oil and gas sector, their application within mining has been notably uncommon, which may pose unique challenges for Uganda.
Thomas Scurfield, an Economic Analyst at NRGI, highlights PSAs as mechanisms that outline the legal relationship between host governments and international oil companies. Following the adoption of PSAs under the latest Mining Act, NRGI researchers, including Dr. Paul Bagabo, compiled a comprehensive report analyzing global experiences in 58 countries with national oil companies. The hopes are that Uganda can leverage these insights as it establishes its National Mining Company.
During a stakeholder engagement focused on equitable value addition, Dr. Bagabo cautioned against the PSA approach, noting potential unforeseen challenges. He stated, “There have been challenges on how to share benefits in form of royalties etc. But we are now moving from one hole to another. Because PSAs in mining have risks. So we really need to sit down and think.” He further articulated the importance of developing Uganda’s capability to manage and market its minerals effectively before entering such agreements.
The report elucidates that various nations such as Azerbaijan, DRC, and Myanmar have trialed PSAs in mining, although countries like Egypt have transitioned to a royalty tax regime. The report indicates uncertainty surrounding Uganda’s stance on PSAs. The Ministry of Energy has proposed that such agreements aim to maximize national benefits, yet researchers express concerns about the sustainability and practical implications of this model.
In a virtual presentation, Scurfield elaborated on potential configurations of PSAs, suggesting that if Uganda opts for in-kind shares, its National Mining Company would assume management and marketing responsibilities, necessitating adequate logistics and marketing arrangements. The report proffers over ten recommendations for the successful execution of the National Mining Company’s mandate.
Dr. Gerald Banaga-Baingi, Assistant Commissioner at the Ministry of Energy, did not directly address the concerns surrounding PSAs but affirmed the government’s commitment to maximizing resource value through the newly formed National Mining Company (NMC). He indicated that the NMC, which recently marked its first hundred days of operation, would analyze the report’s findings for possible incorporation into future strategies.
The governance structure of the NMC has been deemed robust, with a carefully selected board aimed at ensuring efficient operations. The board is chaired by James Mukasa Ssebugenyi and includes various professionals tasked with steering the company forward. Furthermore, the NMC is poised to recruit for several senior management positions to bolster its operational framework.
Engineer David Sebagala, a Senior Inspector of Mines, acknowledged the diverse opinions on the recommendations presented in the report. He emphasized the government’s intention to segregate the roles of the regulator and the NMC effectively. The new Mining Law mandates a 15% automatic government stake in medium to large-scale mining licenses granted after 2022, although this option will be evaluated on a case-by-case basis for its viability.
The government is also considering acquiring an equity stake of up to 30% in specific mining operations, particularly those displaying significant potential despite financial challenges. Sebagala articulated the government’s openness to mergers and joint ventures as part of the broader strategy to enhance Uganda’s engagement in gold mining and related value addition processes.
In conclusion, the implications of adopting a production sharing agreement for Uganda’s mining sector warrant careful consideration. Experts highlight the risks associated with this model, particularly in light of Uganda’s current capabilities in managing and marketing its minerals. While the government seeks to maximize resource value through the establishment of the National Mining Company, strategic decisions must be made to ensure sustainable and equitable benefit sharing. Therefore, the voices of researchers and practitioners alike should inform any future policies surrounding the PSA framework in Uganda’s mining sector.
Original Source: www.independent.co.ug
